Opinion: 3 reasons global markets will root for a President Pence

Bookmakers place nearly even odds that President Trump will be impeached

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Vice President Mike Pence and his wife, Karen, on July 4.

By

MatthewLynn

Fifty to one? Ten to one? In normal times, you could get pretty long odds on a president of the United States being impeached, or leaving office early for some other reason. But Donald Trump is different, and not just because he has never held elected office before.

As the scandal over his links to Russia grows, bookmakers’ odds on his being out of the White House before the end of his first term suggest it’s as likely to happen as not.

And yet global markets have hardly even begun to take that into account.

Were it to happen, it would have a huge impact; after all, the U.S. remains the world’s biggest economy, and the dollar the most important currency. In that scenario, there would be some inevitable turbulence as the drama unfolded, and the president was evicted from office. But very soon, investors in the rest of the world would be looking forward to Vice President Mike Pence taking charge. Why? Because it would signal a return to a more normal administration, because it would create greater stability, and because, while he is of course relatively unknown, his agenda is likely to be based on lower taxes and free trade.

Not since the early 1970s, in the depths of the Watergate crisis, has an American president looks quite so likely to be removed from office as Trump is over the next couple of years. True, impeachment is an incredibly difficult and lengthy process. It takes months if not years, and requires huge levels of political commitment and support.

The markets worry about lots of things, from rising interest rates to a banking collapse in the eurozone to a recession in China to fresh turmoil in the Middle East. But they are all black swans right now. The impeachment of Donald Trump is a white swan — an event that wouldn’t be much of a surprise.

How would that play out in the rest of the world?

With the American political system thrown into chaos by an impeachment proceeding, the government would be gridlocked for a year or more. No one would be making any decisions about taxes or spending, nor would there be any chance of credible appointments being made at the Federal Reserve or elsewhere. Even worse, Trump is so unpredictable that he might well lash out in all kinds of unexpected ways, not least to distract attention from his legal challenges. It wouldn’t be an easy ride.

But once he was removed, or chose to resign, and once President Mike Pence settled into the White House, the markets, at least in the rest of the world, would very quickly be cheering him on. There are three reasons for that.

At the very least, people will know what Pence’s policies are reasonably quickly and can have some confidence he will stick to them.

First, U.S. policy will start getting back to normal. Trump is not really left-wing or right-wing, and he is only nominally a Republican. He is a populist who came out of the celebrity culture to capture the presidency. That night be a good or a bad thing, according to political taste, but there is no question that it poses a unique set of challenges to other countries around the world.

Anyone searching for any kind of consistency or coherence in his policies is likely to come away disappointed. The trouble is that those are the two qualities other nations are most likely to look for in a U.S. president. Pence may have policies that people find sympathetic or not, but at the very least, people will know what they are reasonably quickly and can have some confidence he will stick to them.

Second, there will be a return to stability. As we saw most recently at the G-20 summit over the weekend, Trump is fundamentally a disruptive force. He doesn’t know how to build coalitions, get along with other world leaders, or cooperate with other nations. At the summit, it often looked like a meeting of 19 countries, with one maverick thrown into the mix.

That might be fine at the moment; no one expects a huge amount from the G-20 right now, or from any other meeting of global leaders. But what will happen if there is a crisis such as 2008-09, or even a milder wobble in the financial or currency markets? What are the chances of Trump sitting down with the leaders of Japan and Germany to work out a fix for that? Not quite zero perhaps — but something very close to it.

Trump’s wackiness hasn’t roiled the markets yet, but at some point it will — and that threat will have been averted.

Finally, while we don’t know a whole lot about what positions President Pence might take, his instincts appear to be pro-business and pro-free trade. As governor of Indiana, he pushed through income-tax cuts and resisted increases in the minimum wages mandated by federal law. In the past, he has supported constitutional limits on state spending. He has supported a flat taxes. And he has opposed state bailouts of banks and companies — even in the auto industry, although that is of course a major employer in his home state.

As it happens, his mix of small-state social conservatism might turn out to be fairly unpopular in the United States; after all, if that was what people wanted, a candidate would have emerged on that platform in the last round of primaries. To the rest of the world, though, it would be fine. Indeed, Pence would probably be the most pro-business president since Ronald Reagan all the way back in the 1980s.

Most investors around the world probably haven't given a lot of thought to President Pence yet. That may change at any moment. And when the shock wears off, they will probably like what they see — at least compared with what they have now.

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